Submission to the productivity commission on performance measurement and accountability issues in the australian school education sectors

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Performance measurement studies that utilise school level financial and non-financial data sets evolved initially in diverse Management Accounting, Management Control, Public Finance and Production Modelling applications derived from the Production Economics and Operational Science literatures, (Harrison et. al. 2012). Particularly in the management accounting literature these approaches were developed in the context of private sector organisations where stakeholder objectives primarily related to the maximisation of firm value and survival in competitive environments. Such frameworks are still useful in public sector organisations, however issues of accountability related to nonfinancial performance are more important in the public sector than in private sector organisations. The purpose in the private sector relates to management decision making and control whereas public sector purposes relate to public accountability, efficiency of service provision, and containment of costs.

An appropriate starting point for performance measurement studies in both public and private sector schools utilises a benefit-cost framework focused on inputs, output and outcomes, which considers the relationships between efficiency in addition to effectiveness, concepts adapted from the private sector. However the concept of economy or value for money and public accountability is unique to the public sector. Efficiency is typically defined as the ratio of outputs to inputs, with the goal being to maximise output for a fixed level of input, minimise input for a fixed level of output, or a combination of both. Recent Australian School Efficiency and Performance studies are Blackburn 1983, Chakraborty and Blackburn 2013, Blackburn, Brennan and Ruggiero 2013 and 2014, Pugh, Mangan, Blackburn and Radicic 2014, and Wanke, Blackburn, and Barros 2016. In these empirical studies efficiency and effectiveness is clearly considered in relation to the accomplishment of organisational objectives often defined as the ratio of costs to outcomes. Value for money or economy measures in the public sector economics literature relates to the containment of costs within annual budgetary appropriations.

Initial School Performance Measurement studies utilising Efficiency and Productivity analytics

Ramanathan (1985) was the first Management Accounting academic to operationalise the analytical perspective that has since become known as the “THREE E” conceptual framework using such benefit-cost criteria. Ramanathan’s objective was to link expenditure to results that embodied the social mission of the relevant public sector organisation, thereby providing the rationale for its existence. Based upon the initial path breaking research by Bradford, Malt and Oates (1969), one of the first group of Econometricians and Management Accounting adaptors of such research efficiency analytics using Data Envelopment Analysis (DEA) research methodologies was the classic study of Duncombe, Miner and Ruggerio (1997), followed by Dopuch and Gupta (1997), using Stochastic Frontier Analytical (SFA) research methodologies. Both used this “THREE E” Ramanathan conceptual framework whereby their studies integrated both management control and performance benchmark evaluation issues, such work influencing the subsequent ‘D3’ Data Driven Decision Making (DDDM) analytical framework of Mandinach, (2012). Ramanathan disaggregates the benefit- cost criteria into a series of control linkages that intimately connect benefits to costs as follows:-

B/C = (B/OC) (OC/O) (O/I) (I/C)

Each of the above ratios reflects a control perspective linked through to an overarching Social Benefit/Social Cost whereby the social benefit per dollar spent (B/C) is equal to the multiple of the social benefit per successful outcome (B/OC), the success rate at achieving outcomes (OC/O), the productivity rate (O/I), and the resources available per dollar spent (I/C). The social benefits (B) are the financial measures of the social value of the benefits provided by the organisation and should reflect the organisation’s social mission. Outcomes (OC) are the nonfinancial measures of the social benefits. Outputs (O) are the nonfinancial measures of the volume of activity of the organisation. Inputs (I) are the nonfinancial measures of the resources consumed by the organisation linked to the production of outputs. Finally, costs (C) are the financial measures of the resources consumed by the organisation and used as the basis for standard costs and expense budgets.

As outlined by Harrison (2012), in a public sector entity, it is important that different parts of the organisation should only be evaluated in terms of the control linkages over which managers have direct control or that directly affect managers’ ‘modus operandi’. In the context of Australia the Commonwealth Government’s perspective would include the entire model. The Commonwealth Department of Education would focus on outcomes, outputs, inputs, and costs; State Government service providers (State Government Education Departments), would focus on outputs, inputs and costs; and users of the State Education Departments services would focus on outputs and outcomes. The application of the preferred Ramanathan’s 3E (1985) perspective using both the extant DEA, SFA and newer ‘hybrid’ school efficiency modelling analytics underpins E3’s research perspectives. Such an analytical framework is equally relevant to the diverse School Education systems in each of the eight Australian State Government Education Departments, as well as the Catholic Systemic schools Education Offices and the Association of Independent Schools. Nationally across each of the eight Australian States and Territories E3 in the near future will further utilise this empirical framework of control linkages as outlined in Table 1, similar to those recently completed in a series of empirical efficiency and productivity studies by E3 in the context of New South Wales Government schools. Such empirical studies will provide much needed examples of measures of the currently prevailing school cost and learning efficiency drivers across all school sectors, for use by the respective school sector stakeholders.

Table 1 Harrison, 2012

If the purpose is to compare the performance of a State Education Department then outputs, inputs and costs are likely to reflect best the variables over which the Department has direct control. This generic analytical framework should be used as a blueprint for designing performance models for different school stakeholder groups indicated above, reflecting their respective and differing school stakeholder objectives.

The simultaneous interconnected cost and learning efficiency driver modelling process pioneered by E3 underpins the development of a similar performance measurement framework for all Government and Private schools in Australia as summarised in Figure 1. The State Departments of Education, the Catholic Education Offices and the Association of Independent Schools each fit into this generic stakeholder performance measurement framework, with appropriate possible modifications. Each school sector would need to appropriately fine tune the exact control links in their respective school service provision model. Nevertheless the school service providers in each school sector would need to articulate the performance variables over which they currently have control, namely outputs, inputs and costs. These data items nevertheless can be downloaded independently from the ACARA MY SCHOOL Finance Data base for all the above 9,600 Schools Australia wide from 2009-2014

Figure 1, Harrison 2012

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